Credit crisis worsens
Credit quality “declined rapidly” throughout Western Europe in the second quarter of this year as the credit crunch exacerbated inflation and slowing growth, according to a report published by ratings agency Moody’s today.
The agency, which downgraded 41 debt issuers in the quarter, believes conditions are worsening thanks to rising inflation and slowing economic growth, but suggested that the market may stabilise in the next 12 to 18 months.
It calculates that there is a ratings gap of -29, the worst result since the first quarter of 2003.
“The rate of decline in credit quality has accelerated since the first quarter when the rating gap was -18, due to a surge in the number of downgrades and a fall in upgrades,” said report co-author Ruth Stroppiana, Moody’s Chief International Economist.
“Since the credit crunch began, credit fundamentals have deteriorated and the rating gap has remained negative since the third quarter of 2007,” she added.
However, the report concludes that companies’ credit ratings are holding up better than in previous downturns. In 2002, the ratings gap averaged at – 40.
“Nonetheless, credit conditions are worsening…the downturn in the current credit cycle is unlikely to be over yet,” added economist and report co-author Christine Li.